Chris Lau - Seeking Alpha

Sunday, July 20, 2008

Are Health Care Stocks Back in Vogue?

There have been quiet whispers that pharmaceutical stocks are on the rise, after prolonged negative pressure over the past several quarters. This is a result of patent expires, lack of new drug development in the pipeline, increased R&D costs, and pressure from politicians to reduce drug costs. Generics have also pushed down margins significantly for many pharmaceutical stocks.

So, is it time to buy?

Let's look at the Health Care Select Sector SPDR:Since March, the sector has traded down while diverging from the rising MACD. For over two years, strength has been negative relative to the S&P500. The above ETF has broken both the latter trend, and is forming a 'Buy' signal. However, the ETF must trade above $33 - $33.84 before it can be seriously considered a longer-term hold.